LOGISTICS FOR AN E-COMMERCE BUSINESS: WHEN TO OUTSOURCE IT AND WHAT OPTIONS ARE THERE?
Outsourcing the logistics of an e-commerce business is a decision which may give a rise to doubt. It always means a decrease in your profit margin, it is therefore an option usually considered by businesses which reach a certain volume of weekly orders.
In general, outsourcing is always difficult. How can we be sure that our logistics partner is reliable and will meet our expectations?
However, it is also easy to realise that having a logistics partner provides an excellent opportunity to grow.
Below, we are going to list the benefits and the drawbacks of logistics self-management and
compare it with two alternative management models.
Logistics management on your own account
This is the first choice of all the small online businesses. If you run a craft shop from home, this option will allow you to reduce costs.
Needless to say, in the case when hundreds or thousands of orders have to be dispatched, this option is not feasible anymore.
The option do it yourself sounds as it exactly is: a lot of work.
Benefits of logistics management on your own account
This option is recommended in the case of managing a small volume of weekly orders. It allows to count with a bigger benefit margin and therefore is perfect when a weak order flow has to be managed.
Drawbacks of logistics management on your own account
Order processing, shipping labels printing, parcels delivery, returns processing and so on – all of them fall on your shoulders.
Apart from difficulties in organisation, it is essential to study at which moment this option is not profitable anymore because of the amount of time consumed and since it doesn't let us focus on more important aspects of our business.
Moreover, the e-commerce sector is developing and innovating constantly and it will be very difficult so that self-management allows you to adapt to new trends arising continuously.
In short, this option makes sense when we are starting, but will force us to settle for a small business where we will always be overloaded with work if we don't decide to move on to another alternative further on.
Now we can move on to analyse two options of logistics outsourcing in e-commerce: dropshipping and e-fulfilment.
It is a resale system. In this model, your digital commerce offers products that you don't have in stock. When an order is placed, you order the product from a manufacturer or a supplier and they send it directly to the customer.
Benefits of dropshipping
- There is no need for available stocks.
- You don't have to buy products.
- You don't have to rent warehouses for storing.
- You can expand your range of products at any time.
The supplier will bear the costs of stock management, product handling and shipping, these being precisely the factors which increase the expenses in logistics.
There is strong competition.
- Little profit margins.
- You can't either influence the delivery or control customer's satisfaction.
As enormous competition exists, online shops offer products at a very low price in order to gain customers. With this model, the major part of the benefit will go to the supplier and the profit margin will range from 20 to 40%, depending on the product.
In addition, even though your company is the visible face of the transaction, you don't actually have any contact with the customer and any power of influence on their experience.
For instance, if there is a delay in delivery times, you won't be in control of managing it, but it will indeed negatively affect the trustfulness of the user in your company.
It is about outsourcing the whole e-commerce logistics process: from warehousing and stock managing to order preparation and its shipping to the customer.
The secret of this method's success is that it allows the companies to benefit from knowledge of technology, expert's reports and quality controls of logistics companies.
The majority of big companies in the end opt for this option as it allows them not to concern about this aspect of their businesses while they optimise their processes.
Some owners of smaller online shops chose this option which despite being a little more expensive, lets them save time and focus on the core business and the company's growth.
Benefits of e-fulfilment
- Unlike dropshipping, the goods are in your possession and therefore you keep more control of the sale process, moreover you have a better vision of your stocks.
- What's more important: as you are the owner of the products, you have larger benefit margins. It makes the model of e-fulfilment generally more profitable than dropshipping.
- Let’s you avoid concerns:you save time which you'll be able to devote to your business.
- Let’s you optimise processes and terms. As you don't have to manage different services separately, the processes are optimised and become more agile and profitable.
- More flexibility to market needs and technological advances which take place continuously in e-commerce logistics.
Drawbacks of e-fulfilment
As turning to a fulfilment partner means certain investments, this option is mainly used by larger businesses.
In Nordlogway, we have specialised in integral logistics of food, industrial and chemical-pharmaceutical product sectors, in large distribution and we adapt to the situation and specificities of each customer.
Follow the link to contact us and get the assessment of our expert advisers.